- Last week, Citadel CEO Ken Griffin said America's sanctions on Russia will hurt the US "in a profound way."
- The US is already dealing with skyrocketing inflation, and the sanctions could exacerbate the pain of rising prices.
- Three experts shared what could happen next for American taxpayers.
As the US has imposed a range of economic sanctions on Russia in response to the invasion of Ukraine, several high-profile commentators have warned that Americans will also be on the receiving end of the pain cause by unprecedented financial measures.
Last week, Citadel CEO Ken Griffin said America's sanctions on Russia will hurt the US "in a profound way." The sanctions are weaponizing the dollar, he said, and it'll be American taxpayers that'll end up paying for it. Famed economist Mohamed El-Erian has also cautioned that the economic consequences of the Russia-Ukraine war will spill over into other countries.
In February, the Consumer Price Index rose 7.9% year-over-year, marking the fastest pace since 1982. Gas prices in the US have skyrocketed to levels not seen since 2008.
Sanctions could put even more stress on already weakened supply chains, adding to pricing pressures.
"The US is choosing to shorten supply chains to reduce dependence on undependable or hostile trading partners," Eric Leve, chief investment officer at wealth management firm, Bailard, told Insider.
Given Russia's role as a major wheat exporter, Leve anticipates the lack of supply to be seen on grocery shelves as global prices for the commodity surge. Russia is also a critical supplier of palladium and nickel, and supply chain disruptions in the auto and steel manufacturing will trickle into consumer products, and cause longer waits for electric vehicles.
Aleksandar Tomic, economist, professor, and associate dean at Boston College, says that while price spikes could be dramatic, they may not last long because the American economy is positioned to withstand it, unlike some European nations.
"Probably within a year the US will be able to stabilize its supply and production," Tomic told Insider. "Domestic production could pick up, but it'll be temporary, especially if the West isn't really serious about sanctions and willing to look the other way and keep trading with Russia."
The bigger issue, said Tomic, is if the war drags on and destroys the production capacity of Ukraine. Then the question is how quickly can the US and Europe create an entirely new segment of the supply chain.
"We will be seeing very high prices over the next year, with spikes in energy prices, food prices — everything at the consumer level. I would not be surprised if inflation hit double digits," he said.
Markets, too, have seen heightened volatility since war in Ukraine began.
Jorge Pesok, chief compliance officer at blockchain and software firm Tacen, expects ongoing pandemic repercussions and interest rate hikes to contribute to more market fluctuations, which Americans will have to deal with in addition to rising costs at the gas pump and in stores.
He also noted that the strength of the dollar could wane, echoing Ken Griffin's point last week that the weaponization of the dollar damages its status as a reserve currency.
"The U.S. has shown the power it wields by controlling the reserve currency which is a fact that is unlikely to be lost on countries around the world," Pesok told Insider. "Ongoing geopolitical tensions could well push central banks to diversify away from the dollar."
He also highlighted the prominent role cryptocurrencies have played in Ukraine's humanitarian crisis, and suggested that, if the dollar loses value, a new monetary world order could be on the horizon.
While the US will most likely face economic consequences, an unlikely act of aggression from Russia could create catastrophe. Professor Tomic doesn't expect a boots-on-the-ground conflict between the two countries, but he thinks the most viable scenario would be a cyberattack on something like the New York Stock Exchange or electronic transaction systems.
"If Russia feels threatened enough, it then becomes a question of what type of cyber-warfare will happen," Tomic said. "The more we isolate them [with sanctions], the less they have to lose…my guess is if they retaliate it'll be in the cybersphere."